City 13th In Tax Burden In Small-business Study

City Ranks 13th In Study Of Taxes

Hartford's small businesses face a greater tax burden than their counterparts in Chicago, Houston, Los Angeles and 28 other U.S. cities, a study shows.

Hartford ranked 13th out of 44 cities studied by the National Federation of Independent Business, a small-business lobby, to draw a picture of the overall burden of local, state and federal taxes on small firms.

Detroit's small businesses are the most heavily taxed, the study reported. Rounding out the top 10 were Grand Rapids, Mich.; Portland, Ore.; Seattle; Washington; New York; Madison, Wis.; Columbia, S.C.; Philadelphia; and Wichita, Kan.

Two other New England cities ranked in the study were Boston, 11th; and Portland, Maine, 27th.

The small-business group, based in Washington, lobbies tax policy-makers and legislators on behalf of nearly 600,000 small businesses. The organization is preparing to distribute nationwide thousands of copies of the study to local, state and federal policy-makers and legislators.

The study's "purpose was to give the public and policy-makers an idea of what the total tax burden is on smaller firms, as well as the kinds of things that are taxed," said William J. Dennis, research economist for the National Federal of Independent Business Foundation, which paid for the study.

"The politicians on each level seem to think they are the only ones taxing folks. The only ones that seem to know how the businesses are impacted are the owners down on Main Street," Dennis said.

Entitled "The Taxes Small Businesses Pay," the study measured each city's tax burden on five model enterprises -- a restaurant, a plumber, a clothing maker, a janitorial service and an auto parts

The study did not measure the burden of sales tax and workers' compensation.

In one example, Hartford was the sixth most costly in taxes for the clothing-maker, which had a hypothetical $23.5 million in annual sales; $1.6 million worth of real estate; $9.5 million of personal property; and a $2.4 million payroll.

Of the Hartford manufacturer's hypothetical $629,000 tax bill, 47 cents of each tax dollar is paid locally; 42 cents goes to the federal government; and the state gets the change -- 11 cents -- the study said.

The clothing-maker's annual tax tab ranges from a high of $764,356 in Detroit to a low of $450,458 in Manchester, N.H.

About half the Hartford bill is taxes on capital, such as real estate and equipment, and the rest is split almost evenly between local, state and federal levies on income and labor.

By contrast, nearly two-thirds of the manufacturer's Detroit bill is for taxes on capital, one-fourth is labor taxes; and the rest is tax on income.

In New Hampshire, the biggest bite is for income taxes -- 56 1/2 cents of each tax dollar -- with nearly 36 cents for labor taxes, and the rest for capital taxes.

Hartford ranked 10th in its tax burden on the restaurant; 11th for the auto parts wholesaler; 20th for the janitorial service; and 28th for the plumber.

The study was conducted before the state of Connecticut adopted a state income tax. Officials of the small-business group said they don't know what effect the income tax would have had on Hartford's ranking.

But Don R. Kiley, a South Windsor-based small-business lobbyist who worked on the study, said Hartford's ranking would have been worse if the study had taken into account the state income tax and the cost of workers' compensation coverage.

Kiley said the study has an ominous message for independent firms in Connecticut.

"It says that for small businesses doing business in Connecticut, particularly in Hartford, it is difficult to do business in the state," he said. "The burdens on our small businesses ... our benefit levels, our cost, all of our tax areas; I can't say if you moved those businesses out of Hartford and put them somewhere else in the state, they'd do any better."

Kiley cited an annual policy ballot he says the Connecticut arm of the small-business group conducted a year ago that found that 47 percent "said if given the opportunity again they would not go into business for themselves in Connecticut." Only 40 percent said they would; the rest was undecided.

Connecticut has about 6,000 small businesses that are members of the group, Kiley said.

The study examined tax levies in the seven largest U.S. cities and the capitals of 37 states and the District of Columbia. The group selected cities with populations of 200,000 or more, but settled for a state's largest city if the capital's population was less than 200,000.

Hartford was used in the study because it is the state capital and because it is a close second as Connecticut's largest city